India’s central bank holds first meeting with new govt -

Posted by BankInfo on Mon, Jun 02 2014 11:50 am

MUMBAI: India’s central bank holds its first monetary policy-setting meeting this week amid speculation its hawkish stance could bring it into conflict with the pro-growth policies of the new Prime Minister, Narendra Modi.

Analysts say the central bank’s strong anti-inflation policies may clash with Modi’s aim of reviving an economy which grew by 4.7 percent last year—the lowest level in nearly a decade, and half the rate seen during India’s boom years.

Central bank chief Raghuram Rajan, a former International Monetary Fund chief economist, has hiked interest rates three times since taking over the helm last September.

The Reserve Bank of India (RBI) governor’s policies have been widely lauded for helping to reduce the current account deficit - - the widest measure of trade—and restoring the rupee’s stability. But his tight money policy has disappointed business leaders who have called for lower borrowing costs to spur growth—a view analysts say could find sympathy with Modi’s Bharatiya Janata Party (BJP) government.

“The RBI and the government may not be on the same page,” said Anjali Verma, an economist at financial services firm PhillipCapital. “But it would be a big risk to remove Rajan, especially after his moves were responsible for bringing back stability” to the currency market, she told AFP.

Economists widely expect the bank to keep its trend-setting repo rate—at which the RBI lends to commercial banks—on hold at eight percent at Tuesday’s policy meeting, but say there is no chance it will lower the rate. 

News:Daily Sun/2-June-2014
Posted in Banking, News

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